The sources say that the BOJ is expected to deliver an interest rate hike in June, barring any sharp escalation in the Middle East conflict that could upend markets.
As the war continues to rage on, the sources add that policymakers will continue to scrutinise developments until the last minute before reaching a final decision.
I would say that the line of thinking here is already well expected by markets and BOJ governor Ueda reaffirmed that here. As mentioned yesterday, it will be quite tough for the BOJ to walk back on things now following their recent communique.
As such, it will take a material shift to the US-Iran narrative to really put them off from a move in the next two weeks. The sources in the report say that: “Unless there’s a severe escalation in the conflict, the BOJ will probably hike rates in June.”
Adding that the central bank is also leaning towards pausing or slowing the pace of its bond tapering program for the upcoming fiscal year. That as the debate continues to heat up, both internally and externally, on the matter.
Circling back to the rate discussion, just be reminded that traders are pricing in ~80% odds of the BOJ hiking rates on 16 June.
